The Pentagon Failed Its Audit Again, But Says Bots Could Change That

Another year, another failed financial audit for the Pentagon. But while it could be years before it passes for the first time, the key to getting a clean audit may be contingent on increased use of analytics, bots, and automated systems, according to the Defense Department’s finance chief. 

“We failed to get an ‘A’,” Mike McCord, the Pentagon’s comptroller and chief financial officer, told reporters Tuesday, announcing the results of the department’s fifth annual audit. “The process is important for us to do, and it is making us get better. It is not making us get better as fast as we want.”

The Defense Department’s financial audit is a compilation of 27 probes across the enterprise, including individual agencies and military departments, and covers more than $7 trillion of assets, such as property and military equipment, and liabilities, such as legal claims and base realignment or closure costs. 

The point of the audit is to illuminate how the department spends its money, and to track its assets, which span all 50 states, Washington, D.C., seven territories, and 40 countries for defense leaders and taxpayers. And getting a clean financial audit opinion for each component could improve taxpayer and service member confidence, despite not being the only way for DOD to track spending and find waste, fraud, and abuse.

Seven of the 27 standalone audits received unmodified opinions—which means auditors found their financial statements to comply with generally accepted accounting standards, while 16 were found to have several areas for improvement, according to the report. 

The Defense Finance and Accounting Service and the Defense Health Agency are two of the components to receive unmodified or clean opinions. But replicating that across the entire Defense Department is a challenge partly because not every system that’s included in the financial review can be audited. And scoring well on some parts of an audit is not enough to get that coveted clean opinion, McCord said.

“So the Army for example, to pass an audit for the Army General Fund, has to get everything right. It's not like you get four B's and a D and say well, I got four B’s. You got a D,” McCord said.  

McCord said he expects to see continuous improvement in the department’s audit performance, especially as defense organizations adopt analytics platforms, such as ADVANA, and automated systems to make auditing easier. But there are several challenges. 

“Valuing properties is probably the hardest thing for us to do. I would say systems are probably the most important thing for us to do—reducing the number of systems, getting the right controls on systems,” McCord said. “There are areas where I think that real progress is going to come in the next two years. But having it be across the board—it has to be across the board for these opinions to flip over—and that, I think, is going to be hard.”

There were some wins in the audit. The Defense Logistics Agency tallied all of its physical inventory, and the Department of the Navy improved inventory accuracy in Naval Systems Command. The service also released an automated identity management system, and deployed nearly 200 robotic process automation bots, McCord said. The Marine Corps decommissioned three legacy systems, updated its ledger system, and migrated its transactions to the DOD’s data analytics platform.

Right now, the Pentagon has more than 600 automation bots it uses to complete rote or manual tasks, and more than half are deployed for financial management. By using these bots, the Army was able to pull 96 percent of its audit samples in one day, a task that could take a human up to 10 days, McCord said.

“This kind of speed hasn't yet flipped the needle, or moved the needle in terms of moving an opinion, but it's one of the things that we believe is going to help us,” he said.

Increased use of these bots to access data is essential to achieving a clean audit, McCord said. The department is currently reviewing applications for a financial management director that would be responsible for “advancing financial data driven decision making by making data analytics widely accessible, understandable, and usable across the Defense enterprise,” according to a USAJobs post. But there are some workforce challenges that make widespread adoption difficult.

“So we need to get a workforce and have at least some of the workforce know how to do these things that help people understand how they're used so that they can be in collaboration with the management and how to make them more useful,” he said. “But, also, there's a cultural issue that has to be overcome, I think, of sharing information and not being defensive about people seeing where your flaws are.” 

Results for the Defense Information Systems Agency Working Capital Fund and DOD Office of Inspector General are expected in December. The Marine Corps has a two-year audit cycle that will conclude next year.